High transportation cost-dollars-yuan exchange rate is fixed

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Reference no: EM13798701

Suppose that the U.S. dollars-Chinese yuan exchange rate is fixed by the U.S. and Chinese governments. Assume also that labor is immobile between the United States and China due to high transportation costs.

Which of the following situations is likely to happen as a result of a simultaneous decrease in the demand for U.S. goods and increase in the demand for Chinese goods?

The Chinese unemployment rate increases, and the country undergoes bad economic times for a sustained period.

The U.S. unemployment rate rises at first, but it soon drops as unemployed Americans move to China for employment.

The U.S. unemployment rate increases and the country undergo bad economic times for a sustained period.

The U.S. unemployment rate rises at first, but then it drops as U.S. dollars depreciate against Chinese yuan.

Reference no: EM13798701

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